President Joe Biden has been bragging that he cut the deficit in half, crowing that the budget numbers for fiscal 2022 show the “largest one-year drop in American history.” What Biden is not telling us is that the decline was primarily the result of the largest one-year tax revenue increase in history.
The final budget totals for fiscal 2022 do show that the federal deficit declined from $2.8 trillion to $1.4 trillion. A portion of the decline, $550 billion, was due to lower levels of spending, largely from the expiration of emergency and temporary pandemic spending programs. But the largest part of the decline in the deficit came from $850 billion in higher tax receipts, a 21% revenue increase over last year. Total federal taxes in fiscal 2022 as a share of the economy reached one of the highest levels ever in our history. Taxes as a percent of GDP are at 19.8%, a level we have exceeded only three times — once in the dot-com boom in 2000 and twice during World War II. The 19.8% level is 2.5 percentage points higher than the 50-year average of 17.3%.
THE GOP ARMS ITSELF FOR A NEW WAR ON THE IRS
Similarly, individual tax receipts are now at 10.7% of GDP, the highest level ever reached since the income tax began in 1913. At this level, people are paying 33% more revenue in taxes than the 50-year average of 8% of GDP. Corporate tax receipts are also at record-high levels, reaching $425 billion, twice as much as the amount collected in 2020. As a percent of GDP, corporate taxes are now higher than the 40-year average of 1.6%.
These higher taxes will lead to lower investment and less production and supply, leading to higher unemployment, lower wages, and more economic pain. Instead, Washington should return to the pro-growth tax and regulatory policies that have worked in the past to get our economy on the path to long-term economic growth.
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Bruce Thompson was a Senate aide, assistant secretary of the Treasury Department for legislative affairs, and the director of government relations for Merrill Lynch for 22 years.
